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Spotify has been prepping music fans for their personalized Spotify Wrapped playlist for weeks, and the end of year rollout appears to be right around the corner.
The teases started way back in mid-October, when the streaming giant tweeted, “We want to see your Wrapped Top Artist predictions,” garnering responses from fans eager to guess the artist they had streamed the most throughout the bulk of 2022. (One week later, Spotify launched its new ‘Your Wrapped Soundcheck’ feature for artists on the platform.)
In years past, Spotify has collected data regarding each user’s listening habits through Halloween (Oct. 31) with Wrapped dropping either Dec. 1 or 2 — which in 2022, would mean this Thursday or Friday. And while the company has yet to confirm an exact date for the 2022 iteration of the madness, they’ve ramped up anticipation for the big day since that first tweet.
On Nov. 22, just a few days before Thanksgiving, Spotify promised, “All will be revealed soon” when it came to Spotify Wrapped. One day later, they roped Lizzo into the conversation by posting a gif of the singer beneath another tweet which read, “Turn up the music… it’s almost about damn time for #SpotifyWrapped” — a point-blank reference to her Billboard Hot 100 No. 1 hit, and lead single off 2022’s Special.
On Sunday night (Nov. 27), the streamer sent out the latest alert to anxious fans, tweeting, “Want to be the first to know when #SpotifyWrapped is here? [Heart] this tweet and we’ll remind you!” Based on hints and history, it seems the annual drop of Spotify Wrapped is imminent.
Check out everything Spotify has shared about the latest Spotify Wrapped below.
We want to see your Wrapped Top Artist predictions 👇— Spotify (@Spotify) October 12, 2022
Spotify’s quest to improve its margins has taken another step forward, as a pilot program for billing subscribers using Google devices expands to the U.S. and additional markets. Called “user choice billing,” the system allows app developers to provide Google Android smartphone users with the option of paying the developer directly — at a reduced fee — or through Google Play.
Last week, Google’s user choice billing pilot expanded to the U.S., Brazil and South Africa, and Google announced that dating app Bumble also joined the program. Spotify was the first developer to join the pilot program in March with test markets of Australia, India, Indonesia, Japan and the European Economic Area. With the additional markets, user choice billing will be tested in most of the world’s largest smartphone markets and most valuable music markets.
With user choice billing, prospective Spotify subscribers are presented with two payment options side-by-side in an Android app: Spotify and Google Play. Choosing Spotify will take the user to a form to fill out credit card information to sign up for a subscription. Importantly, it all happens within the Spotify app, not Spotify’s external website. Choosing to pay with Google Play prompts the user to enter a password to pay with the credit card on file with Google.
Billing is an under-appreciated but important issue in the subscription music business. Because music streaming is inexorably tied to smartphones, and because consumers have come to expect simplicity when engaging in e-commerce on smartphones, in-app billing helps a company like Spotify sign up subscribers. The problem for a music service like Spotify operating on thin margins, though, is that app stores run by Apple and Google have traditionally demanded a cut of these in-app purchases. That’s left music companies either paying the app store fees themselves, without raising prices, eroding each subscription’s profitability, or raising the price to compensate for the fee, which could turn away potential subscribers. Prior to 2016, Spotify charged users 30% more for an in-app upgrade to Premium to offset Apple’s 30% fee.
There’s one other option, of course: To save on fees, a music service may disallow in-app subscriptions and encourage a customer to take a few extra steps and subscribe at its website. That process risks losing potential subscribers along the way, but nevertheless, Spotify has gone this route and not allowed in-app purchasing on its Apple app since 2016.
Companies have faced this quandary for years. In 2019, for example, Pandora raised the price for subscribers who used Apple’s in-app purchasing premium subscription service from $9.99 to $12.99 to offset the fees. Pandora reported paying $50 million in fees to Apple and Google in 2015 – 3.7% of its annual revenue.
“It certainly puts independent music services at a disadvantage where we’re paying 30% of the economics out to the platforms that distribute our apps, who also happen to be competing with us, and for the same users, and the same economics,” Pandora’s then-CFO Mike Herring told investors in 2016.
Apple typically charges a 30% fee for in-app purchases during the first year of a subscription and 15% thereafter, according to Apple’s website for developers. Neither Apple nor Spotify have said publicly what fees are paid for Spotify subscriptions. The fees that Spotify pays Google are also private.
“We’re not going to comment on the terms of our agreement with Google because they are confidential,” a Spotify spokesperson tells Billboard, “but it’s safe to say that our [user choice billing] partnership is based on commercial terms that meet our standards of fairness.”
Generally, subscription services such as Spotify pay a 15% fee for in-app purchases, but the fee can go lower. App developers in Google’s Play Media Experience Program, which integrates apps into Google’s ecosystem of wearables and other hardware products, can pay less than 15%, for example. For subscription-based services with significant licensing costs — such as music, video, books and audiobooks — fees “can be as low as 10%,” according to a Google spokesperson.
User choice billing provides additional savings for app developers on top of any other program or discount. If an Android user presented with user choice billing opts for the app developer’s payment system, Google lowers the fee by 4%. So, if an app developer were paying a 10% fee to Google, user choice billing would reduce the fee to 6%.
Small improvements to gross margin are crucial to a music service that pays more than three-quarters of its revenue to rights holders. Spotify’s gross margin on its Premium subscription service was 28% in the third quarter of 2022, meaning that Spotify paid out 72% of its subscription revenue for licensing fees and some smaller costs of sales. Every percentage point of revenue represents about $100 million in subscription revenue in 2022, based on past earnings and Spotify’s fourth-quarter guidance. If Spotify can move its gross margin by a small amount, it would greatly impact the company’s free cash flow. To put it in perspective, Spotify’s net cash flow from operations for the first three quarters of 2022 was $109 million.
While Google seems willing to consider alternative approaches to in-app billing, Apple does not. Prominent app developers, including Spotify, have been fighting for better terms for years. In 2019, Spotify filed a complaint against Apple with the European Commission for anticompetitive behavior alleging that Apple “continue to give themselves an unfair advantage at every turn.”
Additionally, Apple is currently involved in a lawsuit brought by Epic Games regarding its control over the App Store. Although the judge in the case has mostly sided with Apple, the judge did order Apple to allow apps to provide links to payment alternatives outside the App Store. The lower court’s requirement has been delayed until the appeals court rules on the case. The two sides began oral arguments in the Ninth Circuit Court of Appeals on Monday (Nov. 14).
Apple’s strict rules are particularly meddlesome to Spotify’s latest attempt to improve its margins — audiobooks. In September, the streaming service began selling 300,000 audiobook titles following its acquisition of audiobook distributor Findaway in June. The plan makes sense: Audiobook purchases on its platform can provide Spotify with 60% gross margins — about twice the margin in music streaming – and audiobooks are a natural addition to its burgeoning podcast business.
But Apple’s rules for in-app purchases would make audiobooks purchased through an iOS app far less profitable — and a less straightforward process. Whereas the Google app provides “a beautiful experience,” CEO Daniel Ek said during the Oct. 25 earnings call, the process of buying an audiobook through Apple “is inherently broken because Apple decided it wanted it to be broken.” Spotify had lawyers “in the room” working with developers, but Apple rejected Spotify’s app multiple times, according to Ek. “It holds developers back and holds creators back,” he said. “And it’s bad for consumers.” Plus, there’s the added element here that Apple happens to be Spotify’s leading competitor for music streaming.
With audiobooks, Spotify currently sells titles on its website rather than inside the app to avoid fees (the user can listen using the Spotify app after the title is purchased). But just getting people to its website isn’t straightforward. As Spotify claimed on a website called Time to Play Fair, Apple does not allow Spotify to explain how to purchase an audiobook outside of the app, include a link to direct the user to a Spotify audiobook page, request or receive an email with instructions on how to purchase an audiobook or reveal an audiobook’s price in the app or in an email. Spotify’s Android app does not sell audiobooks, but the app allows users to receive an email with a link to Spotify to purchase a title.
In its June investors’ day presentation, Spotify management looked beyond music, podcasts and audiobooks. In the next ten years, Spotify will add sports, news and education to the platform and double the current average revenue per user, said Gustav Norström, chief freemium business officer. The user choice billing pilot program can only help with that goal.
Neil Young got candid about why he asked that his music be removed from Spotify earlier this year on a Wednesday morning (Nov. 16) interview with SiriusXm’s Howard Stern. The rock icon who has staked his reputation on doing things his way explained to Stern that his objection to being on the streamer was two-fold: the famously exacting guitarist/singer thinks Spotify audio quality is not up to his standard, and he was angered by the COVID conspiracy theories spouted by Spotify’s allegedly $100 million podcast star Joe Rogan.
“I woke up one morning and I heard somebody saying there was some scientists saying something about COVID, or some doctors and they were saying something about COVID and how many people were dying in hospitals and misinformation,” Young said, adding that he immediately thought about the nurses and medical professionals who were “distressed” by what they’d heard on Spotify; Young never specifically mentioned Rogan by name in his comments.
“And I listened to it and they were saying he purposely is saying this stuff that he knows isn’t true about COVID and people were dying,” he said of the misinformation on Rogan’s show about medically dubious COVID therapies. “I just called up my management and said, ‘We’re out of there. Get me off.’ And we’ll be fine, and it was a little shocking because they know all the [streaming] numbers. Who cares? You know, who cares? What’s his name? [Spotify CEO] Daniel Ek? He cares about money.”
Young said he knew Ek initially had good intentions with his service, because they’d met and he [Ek] seemed to be “coming from a good place. But then it just turned into money, money, money, money,” he said. When Stern asked how much money Young left on the table by yanking his tunes from Spotify, the Rock and Roll Hall of Famer said he didn’t know and didn’t care.
“I knew I was gonna do fine. There’s Amazon, there’s Apple, there QoBuz, those are three streaming services that play hi-res,” said Young, who has long fought against what he considers the low-quality fidelity of everything from CDs to digital files. “I think in the digital age we should be able to listen to great stuff, the best that we can get out of digital… Because you’re living off the music, why not pay it some respect and make it sound as great as it does.”
Young said he wasn’t surprised that more artists didn’t join his crusade against Spotify. After Young requested that his catalog be removed from Spotify in January — citing the spread of vaccine misinformation on the Joe Rogan Experience — he wasn’t entirely alone. A handful of artists including India.Arie, Nils Lofgren, Failure, his former CSNY bandmates Graham Nash, David Crosby and Stephen Stills and Joni Mitchell eventually joined his leave-taking.
“The way I look at it, that just turned me off and I made an instant decision — I didn’t think about it at all — just take my music off, we don’t need it. We’ve got all these other places,” Young said of his request. “And it sounds better at the other places. Why would I want to keep it on Spotify when it sounds like a pixilated movie?”
When it came down to it, Young said, he made it very clear: you can have “that guy” or you can have me. “So they chose to have that guy because they’re making millions of dollars off of him and they’ve just given him a whole bunch of money and that I would just eventually roll over and be back,” he said of what he suspected the streamers’ fiscal calculus was. At press time Young’s music was not available on Spotify and he told Stern he’s “never going back there, or anywhere else like it. I don’t have to, I don’t want to. I don’t crave the airplay like that. I don’t really need it, I don’t want it.”
A spokesperson for Spotify had not returned a request for comment at press time.
The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.
Most publicly traded companies have released earnings for the latest quarter (ended Sept. 30), and most of those results have shown encouraging signs for investors and the music industry alike. Earnings by Universal Music Group, Spotify, Live Nation, SiriusXM are in the books. Notable companies yet to announce include Warner Music Group (Nov. 22) and Tencent Music Entertainment (Nov. 15).
If there is one over-arching narrative, it’s that inflation and economic uncertainty haven’t ruined music’s post-pandemic recovery. Revenue growth is strong, aside from some softness related to a slowdown in advertising spending that impacts broadcast radio and ad-supported streaming. Consumer spending on everything from concerts to vinyl records is healthy – despite the around-the-clock warnings of an impending recession and the highest inflation rates in four decades eating into consumers’ wallets. When companies have raised prices for tickets and concessions at concerts, music fans, by and large, haven’t blinked. Even long-stagnant music subscription prices are on the rise, and nobody expects a consumer backlash.
Not that music companies’ stock prices reflect this optimism. Stocks in general have taken a beating in 2022. Music stocks have suffered, too, although stocks ended the week on a high note. The Billboard Global Music Index, a measure of 20 publicly traded music companies’ stocks, climbed 12.7% this week after markets rallied on Thursday and Friday on encouraging news about the slowing U.S. inflation rate.
Here are five quick takeaways from third-quarter earnings and the statements made by the companies’ management teams.
1. The subscription business model is insulating creators and rights holders from economic uncertainty. Music royalties are popular with investors in part because they are counter-cyclical, meaning their returns have little correlation with changes in the broader market. Put another way, when the economy sours, people are more likely to cut back on grocery spending or travel than cancel a Spotify subscription. Consumers might feel pinched in their pocketbooks, but Spotify and SiriusXM added 7 million and 187,000 subscribers, respectively, in the third quarter, and YouTube announced on Wednesday that it surpassed 80 million subscribers to YouTube Music and Premium, an increase of 30 million in about 14 months. Stock prices at companies more exposed to inflation pressures fared best on Thursday, as stocks surged on news that the annual change in the consumer price index in the U.S. fell to 7.7%. Shares of radio companies iHeartMedia and Audacy climbed 10.0% and 14.0%, respectively. Live entertainment companies also did well: MSG Entertainment was +5.6%, Live Nation was +5.1%, and ticketing companies Eventbrite and Vivid Seats were +8.3 and +9.2%, respectively.
2. Podcasts are a growing, stabilizing force. Spotify’s podcast business has rightly captured headlines as the company uses spoken-word content to build engagement, generate advertising revenue and improve on the gross margins of its core music business. The number of monthly users who consumed podcasts grew “in the substantial double-digits” year-over-year, the company said. But other companies’ podcast businesses get less attention despite their importance to their own futures. Radio companies – namely iHeartMedia, Cumulus Media and Audacy – have fast-growing podcast businesses. LiveOne, primarily a music streaming company, has a fast-growing podcast division, PodcastOne, that made $17.2 million of revenue in the last two quarters on the strength of such shows as The Adam Carolla Show, Cold Case Files and Uncut with Jay Cutler. The catch is that podcast growth has little direct impact on the music business outside of helping those platforms – digital and broadcast – that produce royalties for record labels and publishers. Music rights owners could better tap into this growing market if there were better systems for licensing music to podcast creators.
3. With share prices relatively low, companies are increasingly buying back shares to bolster shareholder value and help share prices. Among the companies currently engaged in stock repurchase programs are Spotify, MSG Entertainment, Cumulus Media, Audacy, SiriusXM, Townsquare Media and LiveOne. Spotify announced a $1 billion share buyback program in August 2021, and it spent $2 million and $24 million repurchasing shares in the second and third quarters, respectively. Cumulus Media has $21.1 million remaining in its $50 million share repurchase authorization announced in May. Last month, MSG Entertainment authorized $75 million for share buybacks on top of a $175 million, one-time dividend worth $7 per share paid on Oct. 31 to shareholders of record on Oct. 17. And LiveOne announced on Thursday that it will expand its share repurchase program, originally planned for 2 million shares (worth about $1.5 million at Friday’s closing price), by an additional $2 million. More buybacks could be on the way soon: Universal Music Group shareholders voted in May to give the company’s board the ability to repurchase up to 10% of the issued share capital.
4. Strong growth in “rest of world” markets. Believe’s revenue in Asia Pacific and Africa grew 61.1% to 52.3 million euros ($53.2 million), about the same as its European revenues excluding France and Germany. Spotify’s “rest of world” markets improved their share of monthly active users to 26% in the third quarter, up from 21% in the prior-year period. Also, “rest of world” and Latin America each gained a percentage point in shares of Spotify subscribers while North America and Europe both lost a percentage point of subscriber share. As Billboard’s Elizabeth Dilts Marshall reported last week, investors are increasingly eyeing companies in the Middle East and North Africa as streaming transforms those regions.
5. Spinoffs are going to separate high-growth, high-potential businesses. MSG Entertainment plans to spin off its MSG Sphere venue currently under construction in Las Vegas along with its Tao Hospitality Group. The remaining MSG Entertainment will retain the live entertainment business – namely the portfolio of venues such as Madison Square Garden and Radio City Music Hall – and MSG Networks, a sports broadcast network. Ryman Hospitality will spin off its Opry Entertainment Group – possibly within four years, based on its agreement with two new investors, Atairos and NBCUniversal. LiveOne plans to file an S-1 document with the SEC by Dec. 15 for a spin-off of its podcast division, PodcastOne, which accounted for about 37% of the company’s total revenues in the six-month period ended Sept. 30. LiveOne’s management and board believe the company’s share price undervalues the sum of its parts and spinning off PodcastOne would maximize shareholder value and better position the division for M&A and talent acquisition.
Many music companies’ stocks soared on Thursday (Nov. 10) on news that U.S. inflation was less than expected in October. The Bureau of Labor Statistics revealed the consumer price index rose 0.4% last month, less than the 0.6% Dow Jones estimate. Although the annual inflation is still high at 7.7%, it had been as high as 9.1% in June and hadn’t been below 7.5% since January.
Spotify shares jumped 9.9% to $78.44. Universal Music Group shares rose 3.3% to 20.81 euros. Sony shares spiked 6.6% to $44.15.
Live music companies fared especially well: U.S.-based Live Nation and MSG Entertainment improved 5.1% and 6.6%, respectively, while German promoter CTS Eventim climbed 3.8%. Ticketing companies Eventbrite and Vivid Seats rose 8.3% and 9.2%, respectively.
Radio company stocks, recently hurt by the softening advertising market, enjoyed the biggest gains as iHeartMedia was up 10.0% and Audacy rose 14.0%. Cumulus Media and Townsquare Media had smaller gains of 3.3% and 2.5%, respectively.
U.S. stocks had their biggest single days since 2020. The Dow Jones Industrial Average, a group of 30 prominent stocks, rose 3.7%. The S&P 500 improved 5.5% and the tech-heavy Nasdaq climbed 7.4%.
The good news quickly spread to Asia after U.S. markets closed. Shares of South Korean music companies HYBE and SM Entertainment were up 8.3% and 4.5%, respectively, early on Friday morning. Likewise, the Hang Seng Index, a selection of companies on the Hong Kong Exchange, was up 5.0% in early trading Friday.
Persistently high prices have had damaging effects to economies of the U.S. and other countries re-opening from COVID-19 restrictions. Businesses have encountered higher costs for labor, manufacturing and services, and often pass them along to consumers rather than absorb them. Everything from vinyl manufacturing costs to tour buses have soared. Some bands, such as Anthrax and Cold, pulled out of tours because of logistical issues and high costs. “There are tours being canceled left and right,” Jamie Streetman, operations manager for Nashville-based Coach Quarters, told Billboard in Sept.
To tame inflation, the U.S. Federal Reserve Bank, which targets 2% annual inflation, has raised the federal funds rate six times in 2022 to tame inflation. That has made borrowing more expensive for everyone from investors in music publishing catalogs to consumers with credit card bills.
The pairing of high interest-high inflation has wreaked havoc on stock prices, too. Year to date, the Dow index is down 7.2% and the S&P 500 is off 17.0%. Music companies that are otherwise having a solid year have seen their share prices sink, too. UMG shares are down 16.0% and Spotify shares are off 66.5% this year.
While investors celebrated the improvement in the CPI, inflation is still abnormally high and energy costs – a significant cost for touring musicians – were up 17.6% year-over-year in October. Presidents of the Federal Reserve indicated on Thursday that more rate hikes would probably be forthcoming, although at a slower pace.
YouTube announced that it now has more than 80 million Music and Premium subscribers around the world (counting users in trials). That represents a jump of 30 million users from 2021.
In a blog post, Global Head of Music Lyor Cohen called passing the 80-million threshold “a monumental moment for music on YouTube.” He added, “Hopefully, these milestones demonstrate our commitment to becoming the #1 contributor of revenue to the music industry.”
In a statement, Lucian Grainge, chairman and CEO of Universal Music Group, praised YouTube for “creating a compelling and unique music service that is rapidly growing its base of subscribers and contributing significantly to the vibrancy of the music ecosystem.”
“YouTube has demonstrated their commitment to partnership with the music industry and growing revenue for all artists and rightsholders alike,” added Jeremy Sirota, CEO of Merlin.
YouTube’s latest level-up follows the company’s September announcement that it had paid out $6 billion to the music industry in the 12 months between June 2021 and June 2022. That amount represented a hefty 50% increase relative to the previous sum YouTube reported in June 2020: $4 billion over a 12-month period. (In 2020, the company reported that it had 30 million subscribers.)
Cohen has set lofty goals for YouTube: “We want our twin engine of ads and subscriptions to be the #1 contributor of revenue to the industry by 2025,” he declared in September. That won’t be easy; Spotify’s Loud & Clear report said the company paid $7 billion in royalties to the music industry in 2021. That was a 40% jump from the $5 billion the service said it paid out in 2020.
Among other major streaming services, Apple Music reported 60 million global subscribers back in 2019, while Amazon Music reported 55 million subscribers worldwide in 2020 (neither company has updated those numbers since). Elsewhere, the much-smaller Deezer boasts 9.4 million global subscribers as of its Q3 2022 earnings report, while paid subscribers to the diminishing Pandora service were 6.3 million, according to parent company SiriusXM’s Q3 earnings report released Nov. 1.
In his blog post, Cohen seemed cheerful about his company’s ability to leapfrog its competitors, ending the short note with McFadden & Whitehead‘s ode to persistence, “Ain’t No Stoppin’ Us Now.”
The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.
Apple Music’s recent subscription price increase and a likely forthcoming price hike by Spotify would provide a boost to U.S. and global music revenues and likewise impact catalog valuations.
Higher prices for Apple Music and Spotify’s individual plan could be worth hundreds of millions in additional subscription revenue annually in the U.S. Incremental revenues resulting from these price increases have the potential to reach roughly $650 million a year for streaming services. That assumes 7% growth in subscribers in 2023, no additional churn, a full year of higher prices and higher prices for both self-paid and promotional subscription plans.
However, a small amount of churn is possible, and Spotify is unlikely to raise rates at the beginning of the year. Additionally, not all subscription plans are subject to increase. (Apple is not raising the price on Apple Music Voice, for example.) Thus, the actual impact is likely to be lower next year and in successive years.
Apple Music’s individual plans rose $1 from $9.99 to $10.99 per month, while its family plan price increased $2 from $14.99 to $16.99. Apple One, a bundle that includes Apple Music, Apple TV+ and other services, rose $2 for the individual plan and $3 for the family plan (which includes Apple Arcade and iCloud+) and premier plan (which adds Apple News+ and Apple Fitness+).
Spotify could follow with similar price increases in the U.S. of $1 per individual subscription, though it may not further raise its family plan price on top of the $1 increase, to $15.99, that it imposed in April. Spotify also has discounted plans for students that cost $4.99 per month. For these purposes, Billboard assumes those discounted plans will remain untouched.
Creators and rights owners effectively get a raise from a price increase. The same percentage of streaming services’ revenue would flow as royalties to labels and publishers. Higher prices wouldn’t impact listening habits — although some churn is possible — so the math is favorable to creators and rights owners: a larger royalty pool would be divided by the same number of streams to calculate the per-stream royalty owed to each track.
Higher rates from the two largest subscription services in the U.S. would make songwriting and recording catalogs more valuable, too. Price increases will add revenues to a catalog’s existing royalty income, and streaming growth has been positively correlated with higher valuations of music catalogs. As Billboard reported this week, a new paper by New York University professor Larry Miller found that streaming accounted for 62% of the average multiple paid for songwriting catalogs in 2021.
Spotify has not announced a broad price increase on its individual and family plan subscriptions, but CEO Daniel Ek signaled the company would likely follow Apple Music’s lead when speaking to investors during Spotify’s Oct. 25 earnings call. A U.S. price increase “is one of the things we would like to do,” Ek told investors, adding Spotify will have conversations with labels “in light of these recent developments with our label partners.”
Expect higher prices to become the norm. Amazon Music Unlimited raised its prices in May. Deezer raised its subscription prices in France, its largest market, in January and plans rate hikes in Germany and the U.S. in December. Apple Music’s decision to raise prices “opens the door for further price increases down the line,” Deezer CEO Jeronimo Folgueira said during its Oct. 28 earnings call. Exactly how much incremental revenue these price hikes will generate depends on many variables. In any case, creators and rights owners can expect more subscription royalties in 2023 and beyond.
For months, industry executives from Warner Music Group to Kobalt have been steadily beating a drum for investing in the Middle East and African markets.
On Thursday (Nov. 3), it it looked like the investor interest swirling around the region may be codified when Frankly magazine reported that Spotify was considering buying Anghami, the Arab-speaking world’s most popular streaming and content service. Billboard could not independently verify the report, however, and a source close to the situation refuted its contents. A Spotify spokesperson says the company has “no news to report regarding any potential acquisition.” Still, investment bankers say we are likely to see increasing investor interest and action around music assets in these markets, as song catalog prices remain elevated and the challenging macroeconomic outlook for North America and Europe slows down the pace of dealmaking there.
Financial players say that the dominant music streaming platforms and labels are looking to extend their global reach through popular streaming companies like Anghami in the Middle East and Boomplay and others in Africa because of those regions’ rapid growth, comparatively positive economic outlooks and the explosive potential for converting free subscribers to paid.
Anghami CEO and co-founder Eddy Maroun declined to comment on the acqusition reports out Thursday, but in a late-September interview Maroun confirmed the company has been approached by interested parties in the past.
“We believe what we are on to as an opportunity is big,” Maroun told Billboard at the time. “Until now we are independent, and we wish to remain independent as long as it’s in line with our company goals.”
The Middle East and North Africa (MENA) was the fastest-growing region globally last year, with revenues up 35% to $89.5 million and a market that nearly doubled between 2019 and 2021, according to the International Federation of the Phonographic Industry (IFPI). More than 95% of MENA revenues came from streaming, and paid subscribership is expected to double by 2030.
“This sends a very big message to every industry player that this is a hot region and that this is where growth is,” Maroun said in September.
Launched in 2012, Anghami is the first and most popular streaming and content company focused on Arabic-language music, with about 58% of the Middle East’s market share and around 20 million active users, according to company filings.
With investors including the Saudi Arabia-backed firm MBC Group and Middle East Venture Partners and partner Sony Music Entertainment Middle East, with whom Anghami launched a joint venture record label last year, Maroun and co-founder took Anghami public in February.
After listing on the NASDAQ through a reverse merger with a special purpose acquisition company, Anghami stocks have fallen nearly 75% to $2.56 on the NASDAQ as of Thursday. Meanwhile, the company reported first-half 2022 revenues increased by almost 30% and monthly paid subscribers rose by 41% to 1.28 million. Bank sources described that growth as “encouraging,” and say that Anghami’s low stock price could make it an appealing acquisition for companies like Spotify.
For its part, Anghami aims to diversify its business with an entertainment division that houses a content creation studio, runs Anghami’s record label, Vibe Music Arabia, and operates a chain of music venues and lounges, the first of which recently opened in Riyadh, Saudi Arabia.
In addition to MENA, music and streaming companies in Sub-Saharan Africa, where music revenues grew by 9.6% last year, are steadily gaining big industry investors.
Major labels like Sony Music Group are adding staff to local offices in West Africa — where Sony previously had just two people — and Warner Music Group is leaning further into their strategy to acquire record labels and distribution companies in Africa, one of five priorities it pitched to investors during their 2020 IPO roadshow, say bankers familiar with the matter.
“French copyrights and Latin American copyrights became popular a little earlier,” says Michael Ryan-Southern, Goldman Sachs’ global head of music and live entertainment investment banking. “Now we’re seeing more and more music coming out of these local territories and therefore [companies] need to invest to make sure they are capturing that funnel of new artists locally to exploit globally.”
In its most recent Music In the Air report, Goldman Sachs analysts said Africa presents “a significant opportunity over time” and specifically highlighted Boomplay, one of the leading music streaming services, with 60 million monthly active users and a rapidly expanding song catalog.
Sources say streaming services and other companies that provide infrastructure for music are currently more appealing investment opportunities than catalogs by popular artists in the region because investors fear those are less mature assets with unknown decay rates.
Executives from Warner Music Group, Reservoir Media, Primary Wave, Kobalt and others have called out Africa and the MENA region in their emerging markets growth strategies in recent months.
U.S.-based Reservoir Media is one of the most vocal companies about the opportunity it sees in the Middle East and Africa. With its partner, the United Arab Emirates-based independent music company PopArabia, Reservoir recently bought the Egyptian label 100COPIES, the Lebanese label and music publisher Voice of Beirut, and signed publishing deals with Egyptian rapper and singer Mohamed Ramadan, Lebanese indie singer songwriter Zeid Hamdan and Moroccan hip-hop star 7liwa.
On a recent call with investors to discuss Reservoir’s earnings, the company’s founder and chief executive Golnar Khosrowshahi said emerging markets investments are a key part of the company’s diversification strategy.
“The thing about the emerging markets is that we could do high-volume deals, but at significantly lower price tags than what we do in Europe … North America, etcetera.,” Khosrowshahi said.
Outgoing Warner Music Group CEO Stephen Cooper said in September that Warner’s share in the Africa and MENA markets has grown from 10% to 30% in recent years through partnerships with record labels and distribution companies, and it aims to continuing investing in the region.
“Great content, great entertainers, great storytelling is starting to transcend language, and there’s a recognition that the next global chart-topping songwriter can come from anywhere in the world,” says Aaron Siegel, Goldman Sachs global head of entertainment investment banking. “That is a theme that major labels and publishing companies are willing to bet on.”
The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.
Apple Music may have opened the floodgates on Monday when it announced that it will raise prices on its Apple Music subscription service, as well as its Apple TV+ streaming video on-demand service and its Apple One bundle of services (which includes Apple Music).
Apple wasn’t the first music streaming company to broadly raise prices. Deezer started raising prices in France in January. In May, Amazon hiked prices for Prime members for Amazon Music Unlimited from $7.99 to $8.99 (or $79 to $89 if paid annually) and for the single-device plan (for Amazon’s Echo and Fire TV devices) from $3.99 to $4.99 per month. And Spotify started testing the waters in 2021 by modestly raising prices on some plans in select markets – 46 price increases in total, according to company executives. In the U.S., the family plan price increased from $14.99 to $15.99.
But Apple’s decision to ask subscribers for more money signals a tide change and will likely embolden competitors to follow suit. Speaking during Spotify’s earnings call on Tuesday, CEO Daniel Ek strongly signaled the company would follow Apple’s lead. A price increase in the U.S. “is one of the things we would like to do,” Ek told investors, and Spotify could raise prices in 2023 after it has conversations “in light of these recent developments with our label partners.”
Prices for music subscription services have remained stubbornly low for the past decade — to the chagrin of rights holders and creators who want higher royalties from streaming platforms. Spotify launched in the U.S. in 2011 at $9.99 per month. Apple Music launched in 2015 with a standard $9.99 individual plan and a $14.99 family plan, the first of its kind to offer up to six subscriptions per account for $14.99. Spotify, Tidal, Amazon Music and the now-defunct Google Play Music followed with equivalent offerings in the following months. Family plans resulted in a lower average revenue per user but helped reduce churn, Spotify has said repeatedly, and has increased the average subscriber’s lifetime value. Those gains obviated the need to raise prices and allowed Spotify and others to focus on growth instead.
Apple and Amazon certainly had incentive to raise music subscription prices. Apple Music and Amazon Music Unlimited offer high-fidelity audio as a standard feature even though licensing deals with record labels for premium audio are more costly for streaming services, according to industry sources. Unless Apple and Amazon raise prices to offset the lower margins, they must eat the higher costs associated with offering better audio quality. Spotify, on the other hand, does not yet offer high-fidelity audio. Plans for just such a product, called HiFi, have not materialized after announcing the project would come out in 2021. Recently, the company has been surveying customers regarding a more expensive package that would include HiFi, as well as other products.
But now Apple has effectively given its competitors cover to raise their prices, too — whether they offer high-fidelity audio or not. Deezer already planned to raise prices in the U.S. and Germany this month and in Brazil in December. Still, its competitors’ decisions to raise prices “makes us more competitive,” Deezer CEO Jeronimo Folgueira said during Friday’s earnings call, and “opens the door for further prices increases down the line.”
Spotify certainly appears confident it can charge more. Thus far, its price increases had results “as good as we would have hoped for,” said Ek said during the earnings call. “We believe we have significant pricing power and we’re offering an amazing consumer value proposition.” Other metrics seem to have convinced Spotify the time is right to raise prices: engagement continues to increase, and Spotify has “the lowest churn of any competitor,” according to Ek. Put another way, Spotify thinks it can raise prices without fear that a significant number of people will walk away.
Now that Kanye West has been dropped by the talent agency CAA and lost his deal with Adidas, Spotify needs to remove some problematic content from its platform. West’s music isn’t the issue, though.
On the Oct. 6 episode of Joe Rogan‘s podcast, Pink Floyd co-founder Roger Waters says that Palestinians are concerned “that the Israelis seem now to have a policy of murdering so many of them that they are absolutely trying to create another intifada so they can make it an armed conflict,” in Waters’ view, “so they can just kill them all.” Rogan did not ask Waters for any evidence of this. Waters accused Israel of behaving “like people in the past behaved toward Jews in northern Europe” and complained that the Jewish community uses accusations of antisemitism to “smear anyone who dares to suggest there’s something bad about Israeli policies.”
Roger Waters attends the “Roger Waters Us + Them” Photocall during the 76th Venice Film Festival at on Sept. 6, 2019 in Venice, Italy.
Vittorio Zunino Celotto/GI
There’s nothing wrong with criticizing Israel. But over the years, Waters’ advocacy for Palestinians has curdled into bigotry that features comparisons between Israel and Nazi Germany and antisemitic conspiracy theories about media control. In a recent Rolling Stone interview that he complained to Rogan made him look bad, Waters says that Jewish Israelis “are not the descendants of indigenous people who’ve ever lived there” and suggests that some Jewish people in the U.S. and U.K. bear responsibility for the actions of Israel, “particularly because they pay for everything.” (Neither Spotify nor Waters responded to requests for comment on this matter.)
This kind of overblown rhetoric that feeds into antisemitic stereotypes is dangerous, and Spotify should edit or remove this interview and either drop Rogan’s podcast or make sure he’s prepared to ask hard questions of controversial guests.
But it shouldn’t remove West’s music — or Waters’ for that matter.
Weeks ago, Twitter and Instagram did the right thing by locking West’s social media accounts, while Revolt, Diddy’s media company, was wrong to show a lightweight interview with the rapper — and right to take it down afterward. West has the right to free speech, of course, but private companies also have a responsibility not to amplify his antisemitism. (West intends to solve this by buying his own social media company, Parler, which seems like a really bad idea for everyone involved.) Finally, on Tuesday, even Adidas dropped him. West’s deal with the Gap ended last month, but the company said it’s now taking “immediate steps” to remove his products from stores, Balenciaga ended its partnership with him, and stores like TJ Maxx and Foot Locker have also pledged to pull his shoes. At this point, West no longer even has a label (his recording contract with Universal Music ended last year) or a publisher (his administration deal with Sony Music Publishing expired earlier this year, although it will continue to administer his work for some time).
Now questions are being raised about what should happen to his old music, just as they were with R. Kelly and others. I object to West’s recent behavior about as much as anyone could: I’m Jewish (although I certainly don’t think one has to be to in order to object to antisemitism), and I think we all have an obligation to stand against racism (which West’s “White Lives Matter” shirt represents). But there’s nothing objectionable about West’s music. President Obama had it right: “He is a jackass. But he’s talented.”
There are two main reasons why activists usually call for the removal of music, or other work, from online platforms: It promotes hate, or it will benefit someone who promotes hate. Neo-Nazi bands fall into the first category, which is why almost all major platforms have a policy to take their music offline. For the same reason, Spotify should edit or remove Rogan’s interview with Waters.
West’s music isn’t hateful, though. And removing his music would also punish his label, his publishers, and numerous collaborators and songwriters who haven’t done anything wrong. (I think it behooves companies that own or distribute his music to condemn his behavior, but both his former label and publisher have done so.) That doesn’t mean other steps can’t be taken in order to put pressure on him: Apple pulled its West “Essentials” playlist, while Spotify leaves editorial playlist decisions up to individual editors, some of whom seem to have removed West’s music. These seem like smart decisions – and hopefully, if West apologizes, temporary measures.
Until West commits to changing his behavior, the music business should refuse to give West him platforms to spew his hate — and it should do the same with Waters (who should continue to advocate for his politics without crossing into hate or conspiracy theories). But it seems self-defeating to pull their music offline. If nothing else, it reminds fans of what great art they made before their genius was eclipsed by hate.
For the Record is a regular column from deputy editorial director Robert Levine analyzing news and trends in the music industry. Find more here.